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Health Policy and a Pint is an information source for members of the American Medical Student Association (AMSA) and anyone interested in health policy to discuss current topics in health policy over a glass of their favorite beverage in a fun and relaxing environment. We will be recommending articles monthly for your group to take to a bar, a park or anywhere you want to promote active and lively discussion. If you get fired up by what you read, we'll also give you the info to do something about it. So check back monthly, post your thoughts and raise a glass to your health!

Tuesday, May 13, 2008

Provider Reimbursement

Provider Reimbursement

Before doctors can get paid, the hospitals and clinics (healthcare providers) where we work must receive reimbursement for the services they provide to patients. Providers can get either be reimbursed directly from the patient or indirectly from a third-party payer such as an insurance company or the government. Direct from patient payments usually take the form of co-payments and co-insurance (see primer # whatever). Indirect payments may be fee-for-service, budget, or capitation.

Just as individual physicians can be reimbursed per service they provide, so hospitals and clinics can bill insurance companies for each individual part of a patient’s care. This “a la carte” style of billing takes into account expenses such as hospital bed days, medications used, and professional time. Just as in physician FFS payment, FFS payments to providers gives an incentive to overproduce – to keep a patient in the hospital for an extra day, for instance.
In order to undermine the overproduction incentive, some insurers – such as Medicare – give a FFS payment dependent on the patient’s diagnosis on admission. This diagnosis-related-group (DRG) is less like an a la carte cafeteria and more like ordering a bundled entrĂ©e off a menu. The payment is based on the services usually required for a patient with that diagnosis. This gives providers an incentive to be efficient with the care they provide.

Global budgeting is a cost-control method of paying hospitals that gives a lump sum to pay for all patient services over a year. The idea is that hospitals only have a certain amount of money to spend on care. Problems with global budgeting arise when the hospital runs out of money before the end of the year, making them unable to provide services or necessitating a bail-out. It can also be difficult to determine how much to give for a hospital budget, as budgets are usually set based on previous year’s spending. This means more inefficient providers are rewarded for their ineptitude with more money, not given less in order to drive them to be efficient.

Capitation is a way of paying providers that gives a fee per patient rather than a fee for service. Insurers give a provider a set sum to give care to one patient for one year. Any money the provider does not spend, they are allowed to keep. This exerts a cost-controlling force on providers. However, it also may induce providers to limit the number and types of services provided to it’s enrollees. It also gives an incentive to only attract the healthiest – and thereby cheapest – patients to their clinic. Risk adjustment counteracts this tendency to cream-skim by paying more money for patients who are sick or who are demographically likely to become sick. Risk adjustment can be a good tool to encourage providers to tailor services to

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